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ESTIMATING POTENTIAL SALES FOR A RETAIL STORE
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METHODS FOR ESTIMATING DEMAND
Huff’s Model
Analog
Approach
Regression
Analysis Royalty-Free/CORBIS
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Based on the premise that the probability which a given customer will shop in a
particular store or shopping center becomes larger as the size
of store or center grows and distance or travel time from customer shrinks
HUFF’S GRAVITY MODEL
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HUFF’S MODEL FORMULA
tripsshopping of kinds different on time travelofeffect thereflects that oexponent tAn
center shopping point to starting scustomer' from distanceor timeTravel
center shopping of Size
center shopping particular a to travelingorigin ofpoint given aat customer a ofy Probabilit
Where
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APPLICATION OF HUFF GRAVITY MODEL
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APPLICATION OF HUFF GRAVITY MODEL CONTINUED
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PRC = 10,000/5 2 = .889 10,000/52 + 5,000/52
POH = 10,000/152 = .182
10,000/152 + 5,000/52
.889 x $3 million + .182 x $3 million = $4,910,000
REGRESSION ANALYSIS AND ANALOG APPROACH
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Multiple Regression Analysis = Factors affecting the sales of existing stores in a chain will have the same impact upon the stores located at new sites being considered.
Analog Approach = retailer describes the site and trade area characteristics for its most successful stores and attempts to find a similar site.
REGRESSION MODEL FOR ESTIMATING STORE SALES
Stores sales = 275 x number of households in trade area (15 minute drive time)
+ 1,800,000 x percent of household in trade with children under 15
+ 2,000,000 x % of households in trade area in Tapestry segment “aspiring young ”
+ 8 x shopping center square feet
+ 250,000 if visible from street
+ 300,000 if Wal-Mart in center
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APPLICATION OF REGRESSION MODEL
Store Sales A = $7,635,000
= 275x11,000 + 1,800,000 x 0.7 + 2,000,000 x 0.6
+ 8 x 200,000 + 250,000 + 300,000
Store Sales B = $6,685,000
= 275x15,000 + 1,800,000 x 0.2 + 2,000,000 x 0.1
+ 8 x 250,0008-9
ANALOG APPROACH
Analog Approach
Do a competitve analysis
Define present trade area
Analyze trade area characteristics
Match characteristics of present area with potential sites
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